Argentina Desires Deal Grouping All Holdout Investors Together

Argentine President Cristina Fernandez listens to a speech by Adelmo J.J.Gabbi, president of the Buenos Aires Stock Exchange (BCBA), during the ceremony for the 160th anniversary of the stock exchange in Buenos Aires, Argentina, Aug. 20, 2014.

Argentina's government on Wednesday ruled out further piecemeal debt talks with a small group of U.S. hedge funds and said the country needed to strike a deal with all bondholders which have rejected past restructuring agreements as a single group.

Latin America's No. 3 economy fell into default again last month after failing to reach an agreement with a group of holdout funds led by NML Capital Ltd and Aurelius Capital Management, which are suing for full payment on their bonds.

Other funds that also have rejected bond swaps that followed the South American country's record default in 2002 lurk on the sidelines and could launch similar lawsuits.

"We have to negotiate with everyone," Economy Minister Axel Kicillof told a group of congressional committees on Wednesday.

A deal is now not seen likely before next year's October presidential election, in which Fernandez cannot run.

Analysts say the dearth of dollars flowing into the economy will stretch already-sapped foreign reserves and intensify pressure on a peso that is falling through one record low after another.

The local currency shed 1.5 percent on the black market on Wednesday to plumb an all-time low of 14.400 as central bank reserves fell to $28.5 billion.

Argentina's Congress began debating on Wednesday a draft bill designed to sidestep a U.S. court ruling banning Argentina from servicing performing debt until it pays the litigating funds $1.3 billion plus interest.

"The main aim of the draft bill is to show that Argentina can pay its debt and wants to pay its debt," senior government official Carlos Zannini told the same hearing.

Scant hope for deal

Kicillof's comments poured cold water on already dim hopes the government might resume talks with NML and Aurelius in early 2015 following the expiration of a legal clause preventing Argentina from paying holdout investors on better terms than those obtained by investors which accepted restructuring agreements in 2005 and 2010.

Investor optimism for a deal suffered a hammer blow last week when President Cristina Fernandez announced plans to make debt payments locally and to push bondholders to bring their debt under Argentine law.

Zannini said the long-term plan was to bring all Argentina's sovereign debt under Argentine law. Erratic policymaking, which saw interest rates cut last week and then raised this week, has highlighted tensions between the pro-expansion Kicillof and the central bank presiding over one of the world's highest inflation rates.

"It is unclear that they are ready to make the adjustments needed to meaningfully control fx pressures," said Daniel Kerner, director of Latin America and Eurasia Group.

Fernandez's tough stance against the funds she denounces as "vultures" has won wide support among Argentines, but a second national strike scheduled on Thursday underscores the growing risk of social unrest the government faces.